ANALYSIS-Broadcom's bid for Emulex seen as opening gambit

* Analysts expect bidding war for Emulex

* Price could go as high as $12-15 per Emulex share

* Emulex rival QLogic could also become target

* Potential suitors include Cisco, Juniper and Intel

By S. John Tilak

BANGALORE, April 29 (Reuters) - Wireless chipmaker Broadcom Corp's (BRCM.O) bid for storage networking company Emulex Corp (ELX.N) could be the first salvo in a bidding war that may also put Emulex rival QLogic Corp (QLGC.O) into play.

Last week, Broadcom said it made an unsolicited bid to buy Emulex for $764 million, a 40 percent premium over its then market value. Broadcom also sued Emulex for adopting a "poison pill" to prevent a hostile takeover. [nN21476488]

Analysts said Broadcom's move reflects growing interest in data storage, particularly technology called Fiber Channel over Ethernet (FCoE), which helps corporate data centers cope with Internet traffic more efficiently.

Potential suitors for Emulex and its rival QLogic could include Juniper Networks Inc JNPR.O, Cisco Systems Inc (CSCO.O), Marvell Technology Group (MRVL.O), Intel Corp (INTC.O) and PMC-Sierra Inc (PMCS.O), they said.

Some analysts also mentioned possible interest from Brocade Communications Systems Inc (BRCD.O), although it is still in the midst of integrating another acquisition, Foundry Networks.

"QLogic is expensive compared to Emulex, but there are a lot of desperate companies out there," Wedbush Morgan Securities analyst Kaushik Roy said. "They should be or could be bidding for QLogic."

QLogic's market capitalization is about $1.6 billion, nearly double that of Emulex's $860 million. QLogic was spun off from Emulex in 1994, and now has more market share than Emulex, as well as valued intellectual property.

Shares of Emulex, which makes components used to connect computers to remote storage equipment, are trading at $10.66, reflecting investor belief that Broadcom -- or another bidder -- would have to raise its first offer price of $9.25 per share.

Analysts said if a bidding war emerges, the price for Emulex could rise to up to about $15 per share.

"I would think Goldman will advise inadequate price," Needham & Co analyst Glenn Hanus said, referring to Broadcom's offer. Goldman Sachs is advising Emulex.

"They will quietly do a 'market check' and see if there are any white knights," Hanus said in an email interview. "In any case, there might be a higher bid from Broadcom."

An Emulex spokeswoman declined to comment beyond a statement the company issued last week saying its board was reviewing the offer.

Cisco, Brocade and Juniper declined to comment while Marvell, PMC-Sierra, Intel, Broadcom and QLogic were not immediately available for comments.

FOR BROADCOM, AN OPPORTUNE TIME

Emulex and QLogic together control more than 90 percent of the host bus adapter market, according to market research firm Dell'Oro Group, which specializes in networking and telecommunications.

Host bus adapters are devices used to connect servers to fiber channel networks, which can transfer large amounts of data at much higher speeds.

Technology firms are working to integrate fiber channel networks with Ethernet, the widely used standard for local area networks, in an effort to process increasing Internet traffic more efficiently.

Emulex and QLogic are at the low end of their seasonal business cycle, which means the valuation is pretty low, ThinkEquity analyst Rajesh Ghai said. Emulex shares, which hit a high of $17.08 last year and $23.80 in 2007, had sunk to a 10-year low in March.

"Broadcom thinks in terms of timing this couldn't be a better time," Ghai said. "At $9, you're still getting a deal compared to $17 or $23 that you might have to pay when the cycle returns."

On Monday, Emulex reported a third-quarter profit that topped market estimates by a penny and unveiled a fourth-quarter outlook that trailed estimates. [nBNG486084]

J.P. Morgan analyst Mark Moskowitz said the results reflected a challenging environment, but showed Emulex's business model was not deteriorating. That could support valuations above the $9.50 offer. "As a result, we would not be surprised to see additional bids from Broadcom or others," he said.

Wedbush's Roy said a price in the low teens would be considered fair.

A deal could be struck at between $12 and $15 per share, ThinkEquity's Ghai said, adding that if it goes higher than $15, Broadcom would walk away because then they have the option of going to QLogic.

If a bidding war emerges, there would be more pressure on Emulex from shareholders to capitulate, analysts said.

"If they don't accept the deal, what happens going forward? That's something the board has to think about," Ghai said.

(Additional reporting by Ritsuko Ando in New York, Editing by Anne Pallivathuckal and Tiffany Wu)

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